SW Portland and the Housing Trilemma

by Josh Lehner

Tonight I am giving a presentation to the Hillsdale Neighborhood Association. While it will include some research from my day job, all thoughts and opinions expressed are my own, especially as a Hillsdale resident. Below is a more complete summary of my thoughts and a full set of slides. The actual presentation is a subset of this work.

The Portland region has a strong, vibrant economy and a high quality of life. However, these successes have come at the expense of housing affordability in recent decades. These three factors – economic strength, quality of life, and housing affordability – represent the housing trilemma. A city can have two but not all three at the same time. Tradeoffs are inevitable. That said, Portland’s affordability problems are worse than many other fast-growing and popular metros around the country like Austin, TX and even Seattle, WA. The challenge Portland faces is forging a path forward that increases construction to better match a growing population, while simultaneously avoiding the sprawling outcome of many Sun Belt metros. This is not an easy needle to thread.

In fact, progress to date is at best mixed. The Portland region has underbuilt housing in the past decade relative to population growth. And much of the new construction we have seen has been large apartment buildings in a few select neighborhoods. This pattern of growth leads to scattered pockets of dense construction inside an otherwise dormant region, as BuildZoom’s chief economist Issi Romem described it in a recent analysis. These trends are common across the nation, and Romem’s work finds that Portland is doing a little better than Denver, Seattle, and the typical large metro.

That said, Portland is still seeing a very large increase in neighborhoods (census tracts) with almost no new construction. Since 2000, Romem finds that nearly one-third of the Portland area’s neighborhoods qualify as such. Southwest Portland, of course, is no exception given much of our development occurred in the 1950s through the 1970s. Construction since has been minimal, at least outside of the build-up of the south waterfront area. Given our region’s land use policies and goals, this is problematic, even incompatible. Maybe University of Oregon economic professor Tim Duy is right that the only thing Oregonians hate more than sprawl is density.

In this context, I think our experience here in Hillsdale may be a useful example. We do have a good housing variety near the Hillsdale Town Center. Within a few blocks there are a few apartment complexes, but also duplexes, 4-plexes, and townhomes. Don’t get me wrong. Detached single family homes are 72% of all housing units in Hillsdale and 69% in SW Portland more broadly, outside of the south waterfront. However, seeing more duplexes and townhomes, the so-called missing middle housing, would go a long way toward reaching our land use goals and accommodating our growing population.

Specifically, the missing middle housing has a number of advantages. First, as City Observatory notes, it is one way to “urbanize low-density neighborhoods without drastically changing the appearance or character of quite, suburban-looking streets that residents of single-family homes often value.” Duplexes and townhomes are human scale density that avoid the sprawling apartment complexes and tall high rises. In fact, our little street in Hillsdale is about half owner-occupied single family homes and half 4-plex or townhome rentals. It’s a great mix and does not detract from our love of the neighborhood in the least. But our crumbling street and lack of sidewalks do…

Second, with a few more residents in the neighborhood, it is more viable to support a walkable commercial district. Here in Hillsdale there have been periodic concerns about the local co-op and potential of losing the grocery store again. More neighbors should mean more successful businesses.

Third, duplexes and townhomes are significantly more affordable, allowing a larger share of the population to live in the neighborhood. This goes for both owners and renters. For example, just a few houses away from our home, one of the region’s best-known builders tore down an old ranch on a double lot. In its place were built two single family homes in the standard infill style these days. The large home sold for $700,000, while the extra-large home sold for just over $800,000. While new construction is almost always expensive and tailored toward the upper middle class and above, these price points ensure only about 10-15% of Portland area households can afford to buy them. This affordability calculation is based on mortgage rates at the time of purchase, plus property taxes and homeowners insurance. The range is due to down payments of 5% or 20%. Overall, very few households can afford to purchase a new detached single family home in close-in neighborhoods.

However, at the same time this was happening, and directly across the street from our home, another builder tore down an old, tiny bungalow in need of repairs. In its place rose two townhomes, or a duplex. Each one is good sized at about 1,750 sq ft with 3 bedrooms and 2.5 bathrooms. Each sold for just over $450,000. Again, new construction is expensive, however this price point is affordable for one-third of Portland area households, a big step up in affordability. Beyond buyers and renters, lower-cost housing at market rates also means nonprofit developers can afford to build more units as well.

Fifth, increased housing options also better allow for current residents to age in place. No longer will empty nesters have to leave the area when the time comes to downsize from their family home. Today, nearly 1 in 6 households in Portland, and in SW, are single person households over the age of 55. A large detached single family home may not be the best option, however if no alternatives are available, people live in their homes longer because they do not wish to move away, losing long-time friends and social connections.

Sixth, increased options in close-in, low-density neighborhoods is also environmentally friendly. Better transit access is key, along with walkable neighborhoods. That said, the benefits also extend to the public sector and public services as maintaining infrastructure is easier and more manageable.

Bottom Line: The Portland metro area remains a very attractive place to live due to its strong economy and high quality of life. The region needs to ensure an adequate supply of new construction to accommodate the ongoing economic and population growth. Allowing for more duplexes and townhomes within existing neighborhoods provides a handful of benefits and opportunities, including being compatible with our unique* land use system’s goals. That said, infill alone is unlikely to meet the region’s needs. Expansion to allow for new single family neighborhoods will be required as well.

Overall, should the region be unable, or unwilling to accommodate the growth, we know the path we will go down. The lack of housing overall leads to worse affordability and ensures displacement will increase. Only higher-income households would be able to afford to move to Portland. Eventually, the lack of new construction and affordability would restrain or even choke of economic and population growth entirely.

* Or pick whichever adjective you prefer

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2 Comments to “SW Portland and the Housing Trilemma”

I really would like to see the source for this: “Each sold for just over $450,000. Again, new construction is expensive, however this price point is affordable for one-third of Portland area households”. This is not my understanding. Thanks.

Thanks for taking the time and the comment/question. I provide a bit more information on that calculation buried down on slide 33 in the deck. The calculation is as follows.

For a $455,000 home, a household needs to earn between $90,000 and $100,000 or higher. About one-third of Portland area households have at least that much income. Median household incomes in the Portland region is almost $70,000, to help put that in some frame of reference.

More specifically, I run the numbers on a 30 year mortgage using a 3.9 percent interest rate which was market rate at time of purchase. I do this for a mortgage with a 5% down payment and a 20% down payment. Add on $5,400 in property taxes plus $800 in homeowners insurance. Combine all that for the affordability calculation to not exceed 30% of income. That works out to the 90-100 range depending on down payment size.